Explosive Hyperinflation, Inflation-Tax Laffer Curve, and Modeling the Use of Money

This paper analyzes the existence of an inflation-tax Laffer curve (ITLC) in the context of two optimizing monetary models. Explosive hyperinflation rules out the presence of an ITLC. In a cash-in-advance economy, this paper shows that explosive hyperinflation is possible and thus an ITLC is ruled out whenever the relative risk aversion parameter is greater than one. In a money-in-the-utility-function model, it is shown that (i) an ITLC is also ruled out and (ii) explosive hyperinflations are more likely when the transactions role of money is more important.

Economics · Hyperinflation · Inflation (cosmology) · Inflation tax · Keynesian economics · Laffer curve · Macroeconomics · Monetary economics · Monetary policy · Public economics · State income tax · Tax reform · Economic theories and models · Economic Theory and Policy · Monetary Policy and Economic Impact

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